Herzog Contracting Corporation v. McGowen Corporation

Herzog Contracting Corporation (Herzog) (plaintiff) bought a metal-hose company's assets from McGowen Corporation (McGowen) (defendant), assigning the agreement to its subsidiary Tru-Flex, which owed McGowen $500,000 annually. Herzog paid McGowen $400,000, and McGowen executed two promissory notes totaling $400,000 in favor of Tru-Flex; Herzog claimed these represented a genuine loan it made to McGowen, while McGowen claimed the notes were a sham designed only to let McGowen defer taxable income on a partial prepayment to the following year. After Herzog itself failed to pay under the asset-purchase agreement, Tru-Flex assigned the notes to Herzog, which sued McGowen to enforce them; Herzog conceded it wasn't a holder in due course. The district court refused to admit parol evidence about the notes' true intent, found the notes unambiguous, and granted Herzog summary judgment; McGowen appealed.